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The Labor Department surprised investors this morning with good news: unemployment dropped to 10% and only 11k jobs were lost in November, a large difference from October when 111k were lost. As one might expect, this pushed the markets to new highs in the first few minutes of trading, but they couldn't hold those gains. Some of the morning's losses were recovered in the last hour of trading to keep the indexes in positive territory for the day. RUT closed up over $14 at $603 while the SPX set new 2009 highs at $1119 in the first few minutes of trading, but the sellers came in and took it back down. Like RUT, buyers emerged in the last hour to close SPX up $6 at $1106. The positive employment news also bolstered the dollar, up 1.4% today. The market run in early trading was unusual of late in that it flew in the face of the rising dollar. It appears this market is consolidating the strong gains of the past few months in a narrow range; since Nov. 10, the S&P 500 has traded between $1087 and $1119. Over the same period of time, RUT has traded between $584 and $607. It is no wonder our iron condors have been maintenance-free the past few weeks!
My Dec iron condor on RUT stands at a P/L of +$450, delta = -$127 and theta = +$205. The 630/640 call spreads are right at one standard deviation after today's move up. Recall my rule: on the Friday before expiration, I close spreads that are less than two standard deviations OTM. So it is appearing likely that I will be closing these spreads next week unless RUT pulls back a bit. The Jan RUT condor was pulled back into the red by today's move upward with a P/L of -$300, delta = -$66 and theta = +$102. The Jan 650/660 call spreads are nearing an area that will require adjustment if RUT continues upward.
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The markets traded weakly sideways through most of the day and then sold off broadly during the last thirty minutes of trading. Many traders are concerned about the jobs report in the morning and are taking some profits off the table until after they see the market's reaction. ADP's employment report yesterday is normally a pretty good leading indicator of the jobs report and its results were worse than expected for November, although it was still an improvement from October. The market is nervous. As always, be sure your contingency orders are in place. SPX closed down $9 at its strong support level of $1100 and RUT closed at $589, a loss of $7.
My Dec and Jan iron condors are not much changed from yesterday; the Dec position stands at a P/L of +$970, delta = -$87 and theta = +$207 while Jan stands at a P/L of +$440, delta = -$34 and theta = +$90. So far, so good. Barring any severe market moves, both of these condors are well positioned. So we now watch for the employment report in the morning and then see how this nervous market responds - hard to predict.
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Today's markets appear to once again be driven higher by weakness in the dollar. The $64,000 question is: when does a weaker dollar become a negative? Do you know the source for that metaphor? RUT rose over $8 to close at $588 while the SPX gained almost $14 to close at $1109. If you look at the SPX intraday chart, you will see another example of $1100 as a strong support level. Today's close on SPX is just shy of its 2009 high - will it break through? Today's economic news was weakly positive; home sales for Oct were up but November's manufacturing index was disappointing. Construction spending was expected to decline, but it came in flat - is that good?
My Dec RUT condor is moving into a good place as we move closer to expiration: P/L = +$1,530, delta = -$46, and theta = +$134. The put spreads are now over two standard deviations OTM while the calls are over one standard deviation OTM. My Jan condor stands at a surprisingly positive P/L of +$540, delta = -$21, and theta = +$134. It is unusual to have an iron condor on for only one week and be in the black, at least for now. All the talking heads appear to be looking for a correction, so that may mean we will soon break into new market highs for 2009.
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The stock markets opened mixed this morning and couldn't seem to develop a trend. The Dow, NASDAQ and S&P 500 were all close to unchanged. The SPX closed at $1109 up less than a dollar; it appears the 2009 high for the S&P 500 is providing solid resistance at $1113. RUT was the best performing broad index with nearly a $7 rise to close at $596. The issue of the Fed Beige Book didn't stimulate much trading one way or the other. The ADP employment report this morning was worse than expected with a loss of 169k jobs in Nov, but represented an improvement over the Oct loss of 203k. The dollar was somewhat stronger today and that has led to stock market selling recently but that didn't seem have much effect today.
My Dec iron condor now stands at a P/L of +$1,210, delta = -$87, and theta = +$154. The Jan condor stands at a P/L of +$240, delta = -$39 and theta = +$94. The RUT price chart consists of a sideways choppy trend between $575 and $603 for the past 18 sessions. This is perfect for delta neutral traders.
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By late in the day, the general market consensus appeared to be that Dubai's credit problems were not likely to spread across the globe. The markets opened up a little and then traded down and sideways until the last hour of the day. That last hour lifted the indexes into positive territory. RUT moved up almost $3 to close at $580 while the SPX closed at $1096, up about $4. Trading Friday and today exemplify what I have noted in this blog several times over the past few weeks - this is a nervous market. It doesn't take much to push it off the edge. However, rather than try to predict the next move of this market, I prefer to simply keep my positions relatively delta neutral and maintain robust risk management. Keep your stops in place and adjust when your system dictates.
For you chart readers and candlestick fans, take a look at the RUT chart. Today's candle was a classic hammer that often defines the support level and signals a reversal of the down trend. The low for the day was about $568 and the close was firmly back into the range of congestion from about $575 to $605 this chart has been mired in since early November. This pattern would suggest a continuation of this sideways consolidation or the beginning of a new up trend. I am more inclined to expect a continued period of consolidation following the strong up trend of the summer and early fall. But, as noted above, it won't take much negative news to push this market into a correction.
My Dec iron condor is in good shape with a P/L of +$1,450, delta = -$4 and theta = +$124 - your Greeks don't get much better than that! The Jan condor is standing at a P/L of +$140, delta = +$4 and theta = +$78. Again this position's Greeks are near perfect, and this is especially nice since this condor is relatively new. When you establish condors in the range of 45 days or more, the first week or two are the most dangerous to your position; adverse market moves in those early days can push you out of the trade pretty easily. In about 10 days or so, we will begin to look at closing down this Dec condor position.
See you tomorrow.
